Mining Industry Overview

This diagram shows a typical life cycle of a mine with a 26-year life, from start of exploration to completion of closure processes. Five phases have been highlighted.

In this example, activities have the following durations:

Exploration

Evaluation

Construction

Production

Closure

3 years

2 years

3 years

16 years

2 years

The duration of each phase can, of course, vary dramatically.

Exploration has a comparatively high intensity of CAPEX; evaluation is lower, and the most capital-intensive phase is construction.

In the production phase, there is an element of replacement CAPEX throughout the operating life, tailing off towards the end of the production life. The model shows a high intensity of CAPEX again in the closure phase but this can be mitigated by good planning and practice throughout the operating life, which is also depicted in the model.

Phase 1: Exploration

A greenfields mining project is one which starts from nothing, meaning a brand new mine exploiting a deposit for the first time. Historic mining in ancient times tends to be ignored for the purposes of this definition. Reconnaissance and exploration are usually the very start of the process, leading on to the other phases, but sometimes mineral rights to known or suspected deposits are secured in advance and there can be a delay of years or even decades before proper exploration starts. Equally, exploration might be completed and a resource defined, followed by a protracted delay before the subsequent phases commence.

An exploration programme implemented with serious intent might take 3 – 5 years depending on many factors. The desired outcome is a published resource.

There may, for various reasons, be long delays between initial exploration and evaluation drilling and mine development.

Phase 2: Technical & financial evaluation

Together, the two evaluation processes lead to the production of a feasibility study at a certain level. It is an iterative process in which more detailed design, planning and financial models are created as confidence in the project grows. Test work may include metallurgical studies, i.e. Properties of the ore, geotechnical and others. Bulk samples may be mined for these purposes.

The evaluation process should ultimately, in the case of major projects, yield a bankable feasibility study. The entire process is examined in more detail in the Exploration, Evaluation and Planning topic overview.

If a company is motivated to progress quickly to the construction and production phases, sourcing of funds is likely to reach an advanced state during the evaluation phase. In some cases, it may only start after a decision at board level to proceed with a mine.

Approvals could justifiably be listed as a separate phase after evaluation, but have here been included in the evaluation phase. The board of directors of a mining company, or those of other investors, may require to approve a feasibility study before a firm investment decision is made. The feasibility study itself needs to be independently audited by a competent organisation. Therefore, approvals may take anything from six months to a year, so the example of two years for evaluation in the model above is an optimistic estimate.

In some cases, the host government may require to approve a feasibility study before authorising construction. It can be argued that a government’s interest in the study is secondary; it is the concern of the investor to ensure that the project is technically and financially sound. However, a failure can affect all stakeholders. Governments would normally expect, at a minimum, to approve some plans, especially relating to social and environmental protection.

The desired outcomes of this phase are:

an ore reserve, preferably a proven ore reserve;

all necessary approvals by government and the investor’s own board; and

a decision to proceed with construction of a mine.

Phase 3: Construction

Except in rare instances, companies will not commit expenditure prior to receiving all necessary approvals, including the feasibility study, beyond expenditure necessary to complete the exploration and evaluation phase and to actually obtain required approvals.

Any delay in proceeding with construction after approvals have been received may invalidate the conclusions in the various studies. Assumptions made in the feasibility study may become out-of-date.

Construction is the most capital-intensive phase of the mine life cycle. This phase may include:

Pre-stripping in the case of open-pit mines;

Development in the case of U/G mines: shaft-sinking, developing of access declines, initial development to prepare the orebody for the first stages of production (say 12 – 24 months of fully developed reserves, ready for stoping;

Further detailed design and costing;

Early procurement of long lead-time major equipment such as crushers, mills, trucks, drill rigs;

For a large mine, a construction period of three years, under ideal conditions, may be regarded as impressive. In countries with infrastructural constraints, it could be much longer. Bureaucratic inefficiency can also cause inordinate delays and cost the developer huge sums of money.

Long lead times

Some major items of equipment have very long lead times. This means the period between placing an order and receiving the goods. Mobile equipment (trucks, loaders, drill rigs) can have lead times of six to eighteen months. Items like mills are often custom-designed for a particular application and can have lead times of up to two years. Sometimes projects save time and money by purchasing used equipment such as mills or re-using redundant equipment from other mines within the company. Usually these units require overhaul, often in the premises of the original manufacturer.

Construction of a large mine involves moving large volumes of materials and periodic delivery of very large items, which can stress the transport networks of the host region. Extra-large vehicles may require escorts and temporary road closures. Intensive movement of goods during construction may be a good indicator of the capacity of the transport network, as the production phase is also likely to involve shipment of large volumes of materials. The logistics of construction should not be under-estimated.

In underground mines, the construction phase includes development: access declines, shafts and adits. The costs are regarded as CAPEX and company policies may include a definition of capital development, e.g. all development within a certain radius of a shaft. In the construction phase, capital usually allows sufficient development to prepare a predetermined area fully for production (stoping), a process sometimes called blocking out reserves.

The construction phase is often used as an opportunity to train employees in the equipment and processes to be used in the mine, especially in the processing plant. It is useful to involve production teams in construction so that they gain an intimate knowledge of the mine and plant.

Commissioning

In the final stages of construction, commissioning takes place. This involves testing the various installations such as the processing plant, to ensure that they perform as designed. A large, modern plant is designed using computer simulation based on the results of metallurgical test work on bulk samples. However, it is difficult to accurately simulate every condition and it is usually necessary to adjust parameters such as pulp density, flow rates and many others. A plant often includes proprietary processes, i.e. patented technology supplied under license and sometimes covered by a confidentiality agreement.

Suppliers of equipment are usually on site for commissioning, making sure that correct installation and operating procedures are followed. Failure to do so may invalidate warranties. The commissioning process can take up to three or even six months for a large, complex plant.

Sometimes, as part of test work in the evaluation phase, a pilot plant is built, i.e. a small-scale replica of the proposed main plant which is used to test the validity of the design of the main plant, and may give small-scale, early production.

The term “production” may be used interchangeably with “extraction” and “exploitation.” However, “extraction” may also refer to mineral processing.“Exploitation,” particularly in a legal context, may refer to mining and processing and might include “construction.” So the construction and production phases together may be called “exploitation.”

Production may commence with a ramp-up period, with production starting at lower levels and building up to intended full capacity. In the closing stages, it may similarly decline over a period. CAPEX would also be expected to decline towards the end of the operating life with zero expenditure in the last, say, two to three years.

The initial life of a mine at the feasibility study stage might change dramatically during later phases. Mineral resources either unknown or known at the start might be added into the plan. Changes in economics might lead to addition or elimination of mineable reserves. Mines often continue operating for years after their earlier anticipated closure dates. Duration of the operating phase depends on the size of the resource and the rate of depletion and may range from as little as three years to many decades.

Exploration activities usually continue throughout the production phase, for purposes of continued long-term planning, detailed short-term planning and grade control.

The simplified mine life cycle model above shows that rehabilitation takes place throughout most of the production phase as well as in the closure phase. This is best practice and has economic benefits for the mine operator.

Phase 5: Closure

All mineral deposits are finite and must eventually be fully depleted if mining continues long enough. Eventual closure of all mines is inevitable. Modern best practice dictates that closure planning should take place early in the life of the mine. A bankable feasibility study should include at least a conceptual closure plan and a cost estimate. The law in some countries requires this.

Just as the life of a mine might often exceed earlier expectations, premature closure is always a risk due to unforeseen circumstances. Decline in product prices is the most common cause; excessive/unexpected escalation of operating costs is another, sometimes driven by higher wage demands by employees or changes to regulations. Catastrophes in the workplace, such as flooding, fires or major collapses have led to the premature closure of mines.

Activities during closure may include:

Environmental rehabilitation

Disposal of fixed and movable assets, which may subject to legal requirements

Termination of contracts

Termination of employment, with appropriate provision for compensation and relocation of employees and their families, as applicable. The best outcome for employees is re-employment at another mine within the same or another group. In the latter case, this can sometimes be negotiated on their behalf.

There is considerable focus on rehabilitation at this stage as governments and communities wish to avoid being left with a liability for which no-one is responsible. Although the simplified mine life cycle model above shows CAPEX for closure, this item may be dealt with by other mechanisms. Legislation often requires mine operators to set aside funds during the operating life to cover the costs of rehabilitation after closure. These funds may be held in a trust account or by the government itself. It is important to ensure the integrity of these funds as closure costs are very real and substantial. Sound environmental practice and progressive rehabilitation during a mine’s operating life can significantly reduce the cost, time and effort for final closure.

Legislation often lays down detailed procedures for relieving a mine operator of liability after closure. The process may be completed in as little as two years or may take decades in the cases of large mines, especially where severe risks such as acid mine drainage (AMD)or acid rock drainage (ARD) are encountered.